Inside Health

Philips to Reduce Value of Stake in MedQuist

By GREGORY CROUCH

Published: November 18, 2004

Royal Philips Electronics said on Wednesday that it would take a $752 million charge in the fourth quarter to reduce the value of its stake in MedQuist, a medical transcription company that is the subject of class-action lawsuits and a Securities and Exchange Commission investigation.

Having paid more than 1.3 billion euros ($1.7 billion) for its stake in MedQuist, Philips said Wednesday that its 70.9 percent interest in the company was now worth 270 million euros, or $350 million.

MedQuist, which transcribes patient information for hospitals and medical practices, announced this month that its financial results for 2002 and 2003 were unreliable after some of its customers accused the company of overbilling. MedQuist is based in Mount Laurel, N.J.

Philips appeared to have little choice but to devalue a sizable chunk of MedQuist, saying in a statement Wednesday that the announcement of improper billing practices led it to conclude ''that the current valuation of its investment in MedQuist can no longer be supported under the applicable accounting principles.''

Nevertheless, the size of the write-down surprised some analysts. Bert Siebrand, an analyst with Bank Oyens & van Eeghen in Amsterdam, who had rated Philips a buy, was expecting a write-down of 267 million euros ($348 million).

''The size of the impairment suggests the bookkeeping problems the company has had so far are definitely having an impact on its business relations,'' Mr. Siebrand said.

MedQuist's shares were delisted from Nasdaq in June and its accountants are still trying to pull together reliable financial results for the company's performance last year. ''It's a very murky picture,'' Mr. Siebrand said.

Eventually, Philips may have to decide what do with MedQuist. ''Either they take full control and clean up the company and try to restore confidence,'' Mr. Siebrand said, or ''they try and sell it.'' Neither seems likely in the short term, he said, given the kinds of legal problems MedQuist is facing.